* Judge says overdraft fees on depositors were improper
* Ruling says Wells Fargo had facade of "phony disclosure" (Adds spokeswoman comment)
SAN FRANCISCO Aug 10 Wells Fargo & Co (WFC.N) must pay $203 million in restitution because it charged California depositors improper overdraft fees, a federal judge in San Francisco ruled on Tuesday.
The bank processed customers' largest transactions first, as opposed to chronologically, U.S. District Judge William Alsup said in a written ruling. This procedure rapidly drew down customers' balances, leading to artificially high overdraft fees, the judge said.
"These neat tricks generated colossal sums per year in additional overdraft fees, just as the internal bank memos had predicted," Alsup wrote. "The bank went to considerable effort to hide these manipulations while constructing a facade of phony disclosure."
A Wells Fargo representative said the company was "disappointed" with the ruling and planned to appeal.
"While different customers may have a variety of different preferences, many banks process customers' transactions in high to low order because it gives priority to larger transactions, such as a mortgage payment," Wells Fargo spokeswoman Richele Messick said.
The ruling came after a two-week, nonjury trial in the spring.
In California alone, Wells Fargo assessed more than $1.4 billion in overdraft fees between 2005 and 2007, Alsup found.
His restitution order applies only to California consumers, as a separate class action against several banks is moving forward in Florida. Defendants in that case include Wells Fargo; Wachovia Corp, which is now part of Wells Fargo; Citibank, part of Citigroup Inc (C.N); and JPMorgan Chase & Co (JPM.N).
The case is Gutierrez et al v. Wells Fargo Bank, U.S. District Court, Northern District of California, No. 07-05923. (Reporting by Dan Levine; Editing by Andre Grenon and Richard Chang)